Magna, Cerberus, Blackstone lead the race for Chrysler

Agencies|

Mar 15, 2007, 03.06 AM IST

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NEW YORK: Magna International, Cerberus Capital Management and a team led by Blackstone Group and Centerbridge Partners are frontrunners to buy DaimlerChrysler's Chrysler unit, two people familiar with the talks said.

Magna, a Canadian auto-parts manufacturer, and the leveraged-buyout firms have started detailed reviews of the automaker's finances and product plans. DaimlerChrysler executives plan to meet within the next few weeks to pick a favoured bidder for the US division, which lost $1.5 billion last year, the people said.

Dieter Zetsche, CEO of Stuttgart, Germany-based DaimlerChrysler, has put "all options on the table" for the unit, which is burdened by employee-pension costs and slack demand for trucks and sport-utility vehicles. Analysts have valued Chrysler at $3 billion to $5 billion.

Daimler paid $35 billion for the Auburn Hills, Michigan-based automaker in 1998. "We're talking about a turnaround situation, and the attraction to a buyer is that it's still a strong brand name and has a lot of opportunity for cost savings," said Craig Hutson, a senior bond analyst at Gimme Credit Publications in Chicago. "You hope you're buying it at a low point in its cycle."

The frontrunners are in talks to buy all of Chrysler, said the people, who asked not to be identified because the negotiations are private. There is no guarantee they will make offers, Mr Hutson said.

Shares of DaimlerChrysler fell as much as 1.05 euros, or 2%, to e1.50, and were down 1.5% at 10:33 am in Frankfurt. The stock has risen 12% over the last year, valuing the company at e53.2 billion ($70.2 billion).

Credit-default swaps based on 10 million euros of Daimler debt rose e2,000 to e42,500 according to Deutsche Bank. Credit-default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt.

An increase indicates a worsening in credit quality. "They've got to decide what they've deemed to be a fair price," he said. "They have to decide whether they believe they can fix the business and how long it will take."

Chrysler spokesman Mike Aberlich declined to comment. "This is a matter we are letting unfold privately." Blackstone spokesman John Ford and Peter Duda, a Cerberus spokesman, declined to comment. Mark Gallogly, cofounder of Centerbridge Partners, didn't return a phone call seeking comment. The three firms are based in New York.

Magna wants to have "a full understanding" of Chrysler's future, Tracy Fuerst, a spokeswoman for the Aurora, Ontario-based company, said in a statement. "Any preliminary discussions which Magna has had, or may have, with Chrysler regarding potential alternatives would be conducted on a strictly confidential basis."

Mr Zetsche, under pressure from some investors to unravel the merger that formed DaimlerChrysler, said February 14 that he would also consider spinning off Chrysler or keeping the unit. GM, the world's largest carmaker, is discussing several options with DaimlerChrysler, including joint development of vehicles and an outright purchase, sources said last month.